Want To Learn How To Sell a Rental Property?

Posted on April 1, 2011 by Bill Biko

It seems to be another busy week here for me and due to that, I have been negligent with my posting. Between preparing a rental property for sale, the kids out for spring break and half a dozen other projects currently on the go, I’ve been starting many things, I just not been able to get anything completed. So what better time to add a new project to the list?

As I mentioned earlier, we are busy preparing one of our rental properties for sale right now. The mortgage is coming due in a few months so it’s the opportune time right now so I can avoid some of those nasty payout penalties! I’ve been over there numerous times already moving old furniture out, prepping walls and painting already, but today as I was changing out some electrical plugs it hit me (not the plug, but a brainstorm).

Why wasn’t I recording some of these simple tactics we use to help make properties sell faster for you to see? There are easily dozens of techniques we use when we sell a property that many new investors simply aren’t aware of, some techniques even seasoned investors would be fascinated to learn.

So over the next few weeks I will be journaling some of these tactics for the blog. I will also be taking advantage of some of the video work I can do to record some steps that should make it easier to follow and understand. The big question for you would be, “Do you want to learn how to sell your rental property?”

You may be planning on hanging onto your property for many more years or you may want to take advantage of the next little mini boom that is most likely to occur over the next few years, but at some point, you will be selling, so why not learn some tips! If you have any specific questions you may want answered about selling a property, this will also be a great opportunity for you to send them in to me as well.

The property that I’m selling is half of a duplex over in Bowness. We are listing it next week for $259,700 (we sold the other half last spring for just over $264k). The upper unit is a fantastic looking unit in far better shape than the other side. The lower unit however has been operated as a shared accommodation since before we owned it and had three furnished rooms that were rented out either weekly or monthly.

The lower unit is definitely not in as good a condition as the opposite side, but it creates so much cash flow it makes your mind spin. We only have the one room occupied right now and are emptying the biggest room to clean it up (the tenant who was in there just left after we inherited him in 2004, it definitely needed refreshing). With this setup, it was easy to generate over $1,500 out of the basement alone per month, so you can see why we held onto it so long.

It’s going to be our case study for this little project and I am sure most of you will learn a few things. I cannot make any promises on how often I will be able to post or get information up on it, so all I can ask is some patience as I move along. In the meantime, I’m really looking forward to any feedback you may have!


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Outrageous Mortgage Payments in The News Again

Posted on March 22, 2011 by Bill Biko

Having been the recipient of some outrageous mortgage payout penalties in the past I have a rather jaded opinion of this practice that banks are using to provide themselves with a tidy little cash windfall. I’ve previously written about mortgage payouts, but a new story out of Vancouver prompted me to revisit it.

You see, there was a couple in Vancouver who after having their second child found their condo they purchased with a mortgage of over $400,000 was becoming unaffordable to them, due to being reduced to a single income. Being prudent, they decided it was best to sell, take a loss if they had to and then find something they could afford. It turns out doing what initially appeared to be the smart tact ended up sticking them with a $30,000 mortgage payout penalty on their mortgage.

The lender in this case, Scotia Bank, was kind enough to make a goodwill gesture and they reduced the penalty by $5,000, so I am sure the homeowner is ecstatic. Especially since they originally told him, the fee would only be around $17,000.

So what triggered a $13,000 increase in his payout penalty? It’s simple he waited and didn’t sell immediately. By waiting and having less time remaining on the mortgage, you would normally expect this to result in a lower payout charge. Less time left on the mortgage, less money the bank would miss out on, but there is a catch.

The problem for this individual is because he waited, and there was less time remaining on his mortgage, rather than calculate his payout penalty on the five year rate which his mortgage originally was based on; they now used a much lower three year rate to calculate the mortgage rate differential. Does this sound wrong to anyone else?

It also helps explain why banks are currently making billion dollar profits. They have the cash, so they are able to make the rules and the rules change depending on the scenario. As I explained, I’m already a bit jaded with banks and lenders, so perhaps I’m reading too much into this, so I would love to hear your thoughts.

Now I’m not specifically picking on Scotia Bank in this case, they just happen to be the lender in this case. The practice itself is actually an industry standard practice across all mortgage contracts. The idea of these payout penalties is to allow banks to recoup their own costs of borrowing the money themselves. The problem is we never get to see these actual costs and determine whether it just creates a new profit center or is really a reasonable fee. We just have to pay out our fees and move forward.

Perhaps I’m looking at it wrong, but couldn’t the lender simply re-loan the money out again under a term that would fit the period they have the money on loan? Thus, they would continue to profit from the money and avoid their own payout penalties? Unfortunately though, I ‘m not a banker, just a small business person and an entrepreneur so I will likely never know if this practice would be possible and could help reduce these outrageous penalties.

You can find the more on this story here Mortgage Fee Doubles


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Peering Into The Real Estate Crystal Ball

Posted on March 17, 2011 by Bill Biko

Every now and then I like to do a little crystal ball forecasting by looking at the developments around us and then taking an educated guess as to where this will lead us. While it would be nice to have an actual crystal ball, understanding how economics and the world work can quite often provide the same effect.

Would you be interested in a little foresight into what will happen with the Alberta Real Estate market over the next few years? Now there are no guarantees it will play out as many others, along with myself, are starting to see, but I’ll leave that up to you to decide.

Ever so slowly, over the last four years, we have been gradually recovering as a province and a country and depending on whose statistics or numbers you listen to or read, provincially we are pretty close to being back to pre-recession levels. Not the crazy levels of 2006 and early 2007, where there weren’t enough workers, there wasn’t enough housing and there was unbelievable optimism (oh how I miss those days!!). Simply levels that many other regions can only dream about.

Look at some of these numbers, in January 21,600 new jobs were created in Alberta, in February it dropped to only 13,700, but we are still outpacing the rest of Canada. Nearly 78% of all the jobs lost during the recession have reappeared and all the current forecasts only show the trend of new jobs to continue. Alberta is accounting for 20% of the entire countries new jobs.

Hand in hand with these new jobs Alberta has also been leading the country in average wage increases. This combined with the downward pressure on Real Estate prices over the last several years has led Calgary to become the most affordable major city in Canada. Simply put, if people make more money they will pay more money and that is why values in Calgary are where they are and values in New York are at the stratospheric level they are.

Back to Alberta, work in the oil fields has increased dramatically; work in the trades in Fort McMurray has also increased significantly. The majority of the jobs in these types of industries definitely fall into the higher paying category and the forecast is there will be many more jobs appearing in these fields and the accompanying support fields.

Word of this growth in jobs is attracting workers from all over Canada as we are also seeing some of the highest in-migration numbers in years. Eventually this will lead to more pressure on both the rental market and the home sales markets, although likely not enough to cause major impacts in the near future, but a year down the road, who knows.

This type of information is all fairly obvious, but the real crystal ball moment comes when we look at the current headlines which are being dominated by the horrific tragedy in Japan. The devastation caused by the earthquake and the nuclear power plant issues will ultimately result in making Alberta more profitable.

Once all the rebuilding starts (which could be many months away), there will be huge demand for raw materials to rebuild, which will include demand for energy which will include oil and natural gas. All which are found in abundance right here. Rebuilding the devastated areas will require billions of dollars of new construction, new infrastructure and potentially even lead to a resurgence in the Japanese economy, but with a devastating initial toll.

Couple this with the uproar over possible nuclear power plant meltdowns and there will be an even larger surge towards increased use of natural gas for power generation. Several countries around the world have already stepped up and said they are discontinuing upcoming nuclear power projects or will decommission older nuclear plants. This will force these countries to pursue alternative options to generate power with the predominant one currently being natural gas.

Currently natural gas is quite cheap and there are huge reserves of natural gas worldwide. With more areas potentially switching to natural gas to create energy, this may be the catalyst for gas prices to start gaining some upward momentum. Once again, this will result in even more work and employment in the province.

It’s all these indicators showing us that both jobs and the economy are looking very rosy for us that help us see the potential for the future in our crystal ball. We saw these same indicators during the mid 2000’s. The era where the job market exploded, home values skyrocketed and everything was booming.

This time though, I would like to think we will be a little more grounded, at least initially. I don’t see home values going through double digit percentage increases, but there will be significant gains. As usual though, this will come as a complete surprise to people, so consider yourself warned!

Investor’s Perspective

It seems we have reached that point again where many people who take action now will be deemed “lucky” yet again by their counterparts. These are the people who can see the writing on the wall, who see the long term implications of another growth spurt in the energy sector and who actually do something with the information.

Investing in Real Estate is not an easy task, there are a significant amount of pitfalls and it is not a get rich quick scheme. This will scare a majority of the people away. The mindset of the masses is often tuned towards the easy path and the quick rewards. This does not describe Real Estate investing in any manner. Creating wealth in Real Estate requires a longer term vision and the ability to last through the inevitable bumps and pitfalls that show up.

Understanding how the economy plays into the pricing of Real Estate and it’s potential to increase values over time is key to any long term Real Estate investing and hopefully my articles are providing some insights for you. Ultimately it is up to you to decipher what you see happening and where we are heading.


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A Crappy Situation – Investing in Older Properties

Posted on March 4, 2011 by Bill Biko

Dealing With Sewer Problems

Just thought I would throw this out so it doesn’t come as a surprise to you, but simply put, sewer problems are crappy!

I’m probably not alone in thinking this, but if any of you reading this own properties that were built in the 50’s, 60’ or even potentially the 70’s in some areas you need to know about this before you find out the hard way. You see I’m going through some unexpected sewer problems and it looks like I could be out of pocket to the tune of $5,000.

The problem comes down to the type of pipe that was used to build many of the sewer systems in areas like Forest Lawn here in Calgary. Through much of the 1950’s, 60’s and some of the 70’s, all the rage was to use what was referred to as a no corrode pipe for sewer lines. You can tell by its name what the big benefit was, it didn’t corrode.

Unfortunately, it also only has a life expectancy of usually a maximum of 50 years. In most cases, it’s actually much shorter.

In some of my research, it appears these pipes were made with tar paper or tar pitch and ground cellulose (wood) and go back as far as the 1800’s. Over time depending on how they were constructed the tar paper linings tend to wear out and separate internally or the pipe itself starts to collapse. In my case, I have both of these happening along with a complete break.

Options For Dealing With Sewer Problems

Now there are methods to repair minor sewer problems without having to dig everything up. The first one I looked into after a referral from my plumber was a method of inserting an epoxy splint into the sewer pipe. This splint then gets expanded out like a balloon to form a new inner lining. In the case of a pipe that is starting to decay internally, this works phenomenally. However, for a collapsing pipe, it doesn’t work as well, unless it is just a minor collapse.

Option number two that I am at involves trenching part of the line then pulling the old pipe out and pushing through a similar type of sleeve. This one I haven’t figured out exactly how it works yet, but will likely be the method I have to run with as I also have a tree in the way.

Option three is a full and complete trench through my yard, digging up some sidewalk, removing a fence and potentially a tree. This is my most happy solution of crappy options. It might be a bit cheaper, but involve many other headaches.

So what are your options if you have a similar type of property? Well you can do a few things. If you are unsure of what type of piping you may have, you can try calling the city and see if they can update you on what type of piping was used in your neighbourhood. This is the most cost effective way as it’s free, but they may not be able to tell you.

Alternatively, you can hire a plumber or sewer service that has a camera that can be used to inspect your sewers. This can run from $300 to $600 depending on who you use, but can give you a clear picture (pun intended) of what you have in place.

If you find out you do have the no corrode pipe, it is just a matter of time before you have issues, so either start saving up and preparing for the expense or consider bringing someone in to fix the issue before it gets worse.

As a side note, if you ever have a sewer blockage in your home or rental property you can call the city in most areas who will come as soon as possible to clear the blockage. (This is whee the 311 numbers come in handy!) They won’t fix the issue, but they will come clear the blockage. After it’s done you may still need to bring in a plumber later to fully repair or inspect, but this can buy you time. In my case, the city came initially and cleared the blockage and then even arranged to come back a few weeks later with their camera to inspect the pipe.

That’s when I found out about no corrode pipe. They also misdiagnosed the actual pipe separation and collapse and only saw the inner liner coming apart, but nobody’s perfect.
Forest Lawn and the surrounding districts have been highly recommended by REIN over the years as a great investment area and it truly is as it has plenty of renters, is close to downtown and has a huge upside. Just take into consideration the potential for issues underground.

Investor Perspective

These are the types of issues you cannot really budget for, but should fit under your reserve fund category as emergency repairs. In a normal situation holding a $5,000 reserve would cover something like this, but then leave you short for the next few years as you build it back up.

I’ve already looked a bit into whether our insurance covers it and unfortunately it does not. Also the city is only responsible up to the property line, so in the end it all falls back to the property owner.

If you are buying in one of the areas susceptible to problems like this it may be important to pay for an additional sewer inspection so you know what you are facing and to ensure the current owner is questioned about any previous sewer issues. Then at least you can pre-budget or use it as a negotiating tool.


Posted in Blogs Posts, Landlord Advice | Tagged , , , , , | 4 Comments

Bank of Canada Rate Announcement March 2011

Posted on March 1, 2011 by Bill Biko

Bank of Canada March 2011 Rate Holds

As I have been hoping for a while, the government learned from their series of rate increases last year and held solid to the current rate. The benchmark rate is remaining at one percent, even with the strength of the Canadian economy showing what can only be termed, very optimistic growth.

It was similar growth last year that was used as part of the rationale to increase rates in late spring of 2010, and hopefully we don’t see a similar pattern this year. In my opinion, the rate increases last year were at a most inopportune time. Just as the economy was starting to gain some momentum, the wind was literally taken from the sails by the rate increase.

Many home buyers had rushed in to take advantage of the low rates which created a vacuum after the boom. A similar situation could again be the case unless the government starts providing better indicators of their intentions in advance.

Simply put, if people start to fear rates will go up again, we will see another spring rush and then a flat summer. If reasonable expectations are laid out and the public gets informed that there is a potential for a small rate increase in the summer, it may help reduce a panic induced rush of people buying.

There is too much fear and misinformation out there. People simply do not realize that rates will not jump into double digit territory any time soon. History showed how ramping up the rates caused massive economic problems for years. Now with more of a global economy it becomes so much easier for companies to move operations elsewhere or concentrate business in areas that are interested in developing their economies. If a country like Canada were to raise rates like crazy, it would push many of our businesses away further deteriorating our economy.

On the other hand, a country like the US which is printing money like crazy may have to rein in their pending inflation with significant rate hikes. This could potentially make Canada a haven for new business operations for them. A lot of this is speculation, but wouldn’t it be nice?

Investor Perspective

What does the rate holding steady mean to an investor? It will depend on what types of mortgages you have or are intending to acquire. Variable rates mortgages will hold steady and continue to be a great option. Variable rates are insanely low still and can help really increase cash flow for an investor due to the low rates.

Additionally the low rates also allow more of the principal to be paid down on the mortgage helping to put the investor in a stronger position if values were to drop. The caveat, you need to be sure you can support a 2 or 3% rate hike if you have to lock the rate in at a later date. This likely won’t be necessary, but if you plan for it and it doesn’t occur, it just becomes more profits.

If you have a fixed rate, nothing changes for you, unless you are getting a new mortgage or refinancing. Then you have to consider whether rates will go up later in the year; just remember if they do, it won’t be a significant amount, perhaps a quarter point. This should make for a near negligible difference on the investment.

If however, that turns the prospect of purchasing an investment property into a questionable investment, it was never worth it in the first place. If your investment is make or break due to a .25% difference, it is simply too risky to start with.

Longer term, well rates will inevitably have to go up. Just remember it is extremely unlikely they will double in the near future, remember that investment properties worked spectacularly just five and six years ago at often double the rate and remember that if you plan accordingly and build up reserves now you will just float harmlessly through problems later.


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Integrity In Real Estate

Posted on February 22, 2011 by Bill Biko

Integrity

What a fantastic morning! Nothing like a few hours of vacuuming rooming house floors, finding, dust bunnies the size of actual bunnies, old toenails to suck up and spills in a room that you just cannot imagine how they could be accomplished. So there is the less glamourous start, but the good part is the time I have to just think while I am actively cleaning and painting a room.

The topic I was reflecting on this morning was integrity. Integrity in Real Estate specifically. The problem with integrity is it seems to work off of a sliding scale for many individuals. The more I thought about it, the more I realized something. Something incredibly obvious, but also important to be aware of about integrity.

Before we get to that, here are some nice generalizations I’ve seen, been subjected to and been exposed to over the years. Some you may agree with, some you may not, either way I would love to hear your thoughts after you read the post.

Money Changes the Rules

There is a lot of freaking money to be made in Real Estate. Depending on which side of the fence you are on, either having money or not having money, this can change people’s level of integrity.

I have had upstanding tenants who in a normal situation would be people I could trust and have trusted. People I typically have helped quite often in the past, just to get past a hurdle or two. However if this hurdle becomes more of a wall, if their challenges become more severe, suddenly their level of integrity has shifted and they move from a situation of paying their bills to survival.

I have also been in numerous partnerships with people in Real Estate. I’ve had partners use us for information, initially indicating they were bringing us in to the deal and then as the amount of profits became more obvious and larger, suddenly we have been pushed to the side. This shift in integrity is due more to greed.

Our most recent experience (other than bank’s greed), was a property we had with a partner that was sold in very early summer of last year. It was a five year hold, the term was coming up, the lender had given us ample warning they were no longer in the mortgage business (GMAC) and wouldn’t be able to offer a renewal, so we knew we were selling.

Since we had held the property for a considerable time, we were looking at over six figures of equity and it was going to be a nice payday for both parties. Except the other party changed the rules once they arrived in the city from out of province. It was interesting as they actually called our integrity into account and suggested we had cost the other partner $30,000 or more in profits.

We managed the property for five years, dealt with evictions, repairs, problem tenants, broken windows, broken doors and basically did everything we could to turn the property into a great home for people, yet here we are almost ten months later and we have never been paid. In hindsight, this particular partner most likely never intended any fair equity split. I truly believe, again in hindsight, that her integrity level was never there.

We made some amateur mistakes initially and we believe she saw them, understand the benefits to herself and allowed her integrity scale (although after some of the conversations and letters sent to us by her lawyer wonder if she has any integrity) to shift drastically to the nasty side. Meanwhile, we’re $50-60,000 short of some profits we could really use to help out in other areas.

Integrity Changes One Decision At a Time

I think in the money examples above, for the first two instances, the changes in these people came fairly quickly. However, I also think many of these changes begin with one little decision which quickly gets followed up by another and another until the change can be justified.

When it comes to integrity, any misstep or decision that has to be justified, may not involve following the normal path of integrity and has suddenly become a new path forking off to who knows where. Anyway, I’m wandering off on my own path here, so just to get to the point, integrity involves keeping a certain set of standards and not letting those standards slip.

Now I’m not a choir boy, I may not be the nicest person, I may not even be a borderline person to some, but I follow a certain level of integrity that my partners know they can trust, as do my friends. This brings up the question, how flexible is your integrity??

Investor’s Perspective on Integrity

It seems over the last few years, as the market has turned on so many, I have been burned so many times by people who normally would have had good integrity. It hurts and it’s cost me friendships and a significant amount of money, but I have also learned some valuable lessons for both Real Estate and life.

We are not in the 60’s anymore, a handshake counts for nothing, you need full and complete documents and contracts for Joint Ventures, partnerships and any and all leases you are involved with. Whether it’s a deal with your neighbour or a deal with a superstar in the industry, trust counts for zip compared to properly completed documents.

Do not wait for when you have time, do not wait until it’s convenient, if there is going to be a significant amount of risk of cash, your credit or your integrity, get everything signed, sealed and delivered before committing to anything.

So just to close off, have any of you been burned by partners, investors or tenants? Now don’t name names, but tell us your story and tell us any lessons you’ve learned. Sharing and reinforcing this to people is the only way to help others avoid similar nightmares.


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A Fun Email From a Potential Tenant – NOT!!

Posted on February 18, 2011 by Bill Biko

Strange Tenant Emails

Ok, it’s been a couple days now, I am no where near as annoyed as I was when I received the original email and I even made time to make an extra special video up for this one.

I’m using a brand new style of putting this video together, so would appreciate any feedback about it. Plus I would love to hear your thoughts about the email I received.

P.S. Pay close attention to the labels at the bottom during the video!!


Posted in Blogs Posts, Tenants | Tagged , , , | 10 Comments

Secondary Suites – Petty Little People

Posted on February 16, 2011 by Bill Biko

Calgary Secondary Suite Issue

There is a hot new topic being discussed in Calgary right now and its revolving around secondary suites. Our new mayor, Naheed Nenshi, is behind a proposal that would legalize secondary suites in almost every district in Calgary and he is facing some tremendous opposition mostly from community associations and homeowners.

So what’s the problem? Well the homeowners and community associations (which are pretty well made up of homeowners strangely enough) are pointing out how it will destroy property values in their districts, how renters will neglect the neighbourhood because they don’t care and how they originally purchased their properties because they were zoned R1 and how they simply don’t want change. More accurately, it’s a case of NIMBY.

If you are not familiar with NIMBY, it stands for Not In My Back Yard. This usually pops up when individuals are more concerned about themselves than anything else, which makes me think of these people as Petty Little People. I may start to get a little opinionated here, so hang on (oops that warning was two paragraphs late!).

I have to say I haven’t actually quizzed any of the Realtors I know, but I have the feeling a significant portion of the people who have bought homes from them never asked “Is it zoned R1?”. They bought the homes they own because it was in an area they liked, it was convenient for their work, it was great for their kids, but because it was zoned R1? Really?

Having suited properties nearby will decrease my property values? Again, really? What exactly is this based on? Wouldn’t having a mortgage helper suite in the basement actually be a better idea than having a row of foreclosed properties across the street. The lowball offers that flow in for foreclosures could spell more impending doom for pricing values in your neighbourhood than having a paying tenant living downstairs across the street.

Renters will neglect the neighbourhood and it will go downhill. That comment makes me want to slap someone. Our first home in Riverbend had owners across the street that made the Beverly Hillbillies look high class. They left half of a shell of an ambulance on their driveway for six months, decorated their non-working pickup truck in the driveway with Christmas lights and dutifully cut their lawn twice a year. These were owners!

Our new neighbourhood has a neighbour with five vehicles, a Harley and a stream of the son’s friends parking outside where my kids often play. I even watched the dad just outside my home do a donut to turn around quicker, perhaps that’s why his son does it as well? Both these people and the ones in the former neighbourhood are owners. Other than calling the bylaw police or catching incidents on film, I have zero recourse, if however they rented, I could talk to their landlord. Perhaps they wouldn’t renew when the lease came up?

My opinion is that if you have a nice neighbourhood, with a nice rental property and a proper landlord, you will have good tenants. If the tenants are bad, it falls back to the landlord to deal with it.

So what happens if this does get pushed through, well suddenly there will be a surge of new rentals suites appearing on the market? Many of them which have probably already been there, but now they will get inspected and legalized. Thus ensuring they are safe and suitable, unlike many of the illegal suites currently operating out there.

With extra suites appearing, the downside for anyone who is currently an investor is rental rates may drop for a bit. This in turn works out great for the renters as there will be more choices, safer properties and it will create a better lifestyle for many people. This could be the perfect first step to helping make housing more affordable for more of the population.

Here’s an interesting little tidbit of information. Calgary is the only major Canadian City that currently has restrictions in place for zoning of secondary suites. They are banned in roughly 60% of the single family homes in Calgary because of zoning.

The big issue from all this is that is solves a lot of problems for people just getting by (both homeowners and renters), it helps make the city itself more attractive to people moving her for work (and there will be plenty more coming in the next couple of years) and it’s a fairly simple solution. The question is, will the Petty Little People make so much noise it gets squelched?

Investor’s Perspective on Real Estate

Obviously, the addition of new suites will have a direct impact on rental rates, but how much? If landlords are smart, it will likely be very little. There is no reason a landlord with a beautiful suite in Tuscany (NW Calgary) should be lowering their rates to the equivalent of a 30 year old property in Forest Lawn (SE Calgary). They may have to lower the rate slightly to be competitive in the area, and there will be some fools who don’t understand how it works, but for the most part, we should be looking at small decreases around $50-$100 to attract tenants.

The big issue will be for the slumlords out there. With all the extra competition of new shiny suites in nicer neighbourhoods, how will they possibly attract tenants? They have two choices, they will have to reduce their rents even further, or they will have to pony up and fix up their places. This will make it appear that rents are decreasing, but when smart landlords are paying attention, they will notice the low cost units that smell of mould and decay seem to be continually up for rent. So although they are priced low, no one is actually renting them and the nicer, higher priced properties will still rent just fine.

As for property values, if it’s a unilateral move across the city there will be absolutely no change in values. Since it’s all encompassing, nothing changes. The bonus may be slightly down the road when the homeowners who suited their property finally sell them and discover there is demand for properties that have suites in them and they may actually increase the property values.

It will be interesting to see who wins, I’m hoping for them to approve it, but NIMBY’s can be whiny and that’s the problem we often run into. The loudest voices win rather than the smart choices.

What are your thoughts? For or against? Or should I just keep my opinions to myself in the future so as to not upset the apple cart? Comment, reply email me,  just tell me your thoughts!


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More Bad Housing News!

Posted on February 9, 2011 by Bill Biko

Alberta Households At Risk!

Apparently Alberta households are among the most vulnerable in Canada and have the greatest potential risk to negative economic occurrences. This is directly from a report released by TD Economics and says Alberta is second only to B.C. for financial vulnerability if one of the following three events takes place

  • house prices go through a substantial correction
  • there is a major disruption in incomes
  • or if there is an unexpected large increase in borrowing rates.

They also forgot to mention if Earth is invaded by aliens property values would also severely be affected. Seriously, does it get a bit tiring to you for all these negative reports to continually come out so they can grab some headlines?

If you actually read into the report they actually say “the probability of one or more of these negative events occurring in the coming years is relatively low”. So why even bring it up? The country is just recovering from a recession, the last thing we need is someone sitting in a cubicle in some back office at a bank (a bank which just happens to be making huge profits) making predictions of negativity.

Real Estate Investor Perspective

I mentioned I would start providing some perspective from someone who buys investment property in my posts, so here it is. While it pisses me off that all this pessimistic publicity continues to pop up everywhere, it’s actually a good thing for investors.

It puts fear into the hearts of people on the fence and keeps them in the rental market. After all if some economist says there is a chance the values could drop, there is a chance right? Better stay renting so I don’t get burned. It’s thinking like that which is exactly why the masses never get out of the rut they are in.

The herd mindset keeps the masses where they are and allows the individuals who actually look at the big picture to move forward. Look at Donald Trump, do you think he didn’t hear more than once that property is a bad investment? Yes he almost lost everything, but now look where he is, because he didn’t fall for headlines like the one on this story.

If someone told Warren Buffet when he first started that there would be not just one, but multiple setbacks to the stock market during his investing, do you think he would have been deterred? Maybe he did pay attention and just went into it a bit more prepared, well perhaps you can too.

If values drop, people will still rent, they will be scared of the housing market for ages allowing investors who are not over leveraged to continue to receive great cash flow. If you understand that cash flow is the priority right now for any Real Estate investment you will be absolutely fine.

What are your thoughts? Will you continue to buy property? Are you too scared of all the doom and gloom predictions? Maybe you just feel better off staying in your nice secure job with Nortel, no not Nortel,  Enron, hmm maybe not Enron either, Compaq, right they don’t exist anymore either and laid off people too, hmm, anyway stick with your secure job wherever it is and you will be just fine.


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Mortgage Rates On The Rise – Should We Panic?

Posted on February 8, 2011 by Bill Biko

Surprise surprise, banks are raising their rates. OK, we all knew it was going to happen, but now it’s suddenly front page news? The only excitement about it was who the first lenders to jump the gun would be.

So The Big Question:
Are The Rate Increases Worth Panicking About?

At this point, we are talking about a quarter percent increase, which is rather minimal. This shouldn’t be a make or break increase for 98% of the population. If you are a buyer, and this pushed you out of the market to buy a property, perhaps you shouldn’t be in the market for property? If this small a change in rates made it unaffordable, the increase likely saved you from losing even more money and getting caught in a downward financial spiral.

Should You Lock In Your Variable Rate?

If you have a variable rate mortgage do you need to rush to the bank and lock your variable rate mortgage in before the rates skyrocket? In my opinion, this is only the start of an increase in rates. I believe most of the banks will raise their rates once, see how the market deals with it. Then if they can squeeze some additional profit out, they will likely raise them again and say it’s due to market demands.

However, I don’t believe it will be large increases, nor will it last long. We will see the quarter point now and maybe another quarter again later in the month in anticipation of the next Bank of Canada rate announcement, but then they will likely stabilize or even drop a quarter again.

Increased rates will put pressure on the housing market, pressure that will slow down demand and sales. When lenders realize the market is slowing and they are losing profits, they will not raise their rates and this is when they may claw back a quarter again to stimulate borrowing (or really profits!).

Do You Need To Buy Now Before Rates Increase?

If you are planning on buying a property, do you need to do it now rather than wait any longer? Let me ask you this, did you find the property you want, or are you settling so you don’t miss out? If you are being driven by emotion, rather than affordability and common sense, DO NOT BUY.

There is still a fairly large window of opportunity to purchase and if your budget gets shot by even a half percent increase in rates, you are one of the fringe buyers who should step back, save a bit longer and jump in later. If however, you found the exact home you wanted, why wouldn’t you take advantage of the incredibly low rates that still exist?

Media is building up the hype about the rate increases because hype sells. Stop for a moment and look at how low the interest rates currently are. If they increase a full percentage point, they are still pretty darn reasonable.

Is This Just The Beginning of The Mortgage Rate Runup?

I mentioned this earlier; we all knew rates had to go up eventually. It’s a fine balance of how much and how fast and there will be mistakes made. My feelings are the Bank of Canada made a mistake last summer raising the rates twice. I believe we would have been in a much better economic situation if they held off both or at least one increase then.

By raising the rates, they stalled the economy and slowed the growth. I would like to believe they recognize that and won’t do it again this summer. Then again, government doesn’t always do the correct thing, they often follow what big business or the people want and go that route to keep people happy. Perhaps one increase this time and then they should allow time to go by and see how it has affected the balance, rather than two increases in a row, albeit small increases.

Long term picture though, rates will continue to increase. As the economy grows, the rates will be increased by the Bank of Canada to stabilize inflation and keep it under control. Fixed mortgage rates are not actually tied directly to the Bank of Canada rate, but instead to the bond market, so they do not have to increase or decrease with the central banks changes.

Bond markets however grow with the economy and move upwards as the economic situation improves. So inevitably the economy will pickup, the central bank will increase rates and the bond market will improve. It just won’t happen overnight, so please don’t panic.

Investors Perspective on The Market

If you are a seasoned Real Estate investor, this increase is great. It squeezes out a bit more of the competition that really shouldn’t be competing, it’s putting fear into the market when you should have a firm grasp of the reality behind the hype and any purchases you are making now should all be based on cash flow anyway.

With slightly less competitors in the market, you have more time for analysis and more opportunities arise. With fear in the market, it’s more stimuli for extra opportunities to start appearing. For some current owners it may put more pressure on them to move their properties before they get hit with increased rates. Tie that in with more lenders not renewing mortgages on rental property and it gets more interesting.

If you have all your ducks in a row, have found a lender who will work with you and are basing everything on strong cash flow, this current market may look like Nirvana! Prices are still reasonable, rates are still good and demand for rental property over the next two years will continue to increase. So what are you doing reading this? Go buy something, or tell me what you think is going to happen!!! Just take some kind of action!


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Freaking Fear Mongerers

Posted on February 4, 2011 by Bill Biko

Heard it on the radio this morning. Couldn’t believe my ears. Some freaking economist in Ontario has come out with a report stating house prices could tumble 25% ACROSS CANADA. Which is exactly what the radio is reporting and as I look around at the various online papers I find they are using this as attention garnering headlines.

Of course, if you actually look into the report he states that this hinges on the Bank of Canada raising it’s rates to about 3.5% over the next year and a half. Well here’s my prediction. The government may eventually raise rates again later this year, if the economy continues to recover at a steady pace,if it;s flat, with minimal inflation impact, it remains status quo.

The government doesn’t have a goal of getting rates to 3.5%, because their goal is to control inflation and economic growth. Having a target interest rate they absolutely have to reach is madness. Proposing that housing prices will fall 25% is freaking madness, which is why they bury there “if this happens” caveat in the information.

In my opinion, the premise for this report is just to grab headlines and attract attention. If you want to read a bit more about this (and see some counterpoints from a Merrill Lynch economist) you can find one of the stories at this iPolitics link, Interest Rate Rise Could Trigger House Price Collapse


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Why Don’t Tenants Read The Ads?

Posted on January 17, 2011 by Bill Biko

This post is just a short little pet peeve of mine. Part of being a landlord is learning to write ads that do a portion of your work for you. If you don’t put little qualifiers in place such as “non-smoking” or “no pets”, you will get calls from people who want to smoke inside and people who have pets.

By utilizing these qualifiers you are normally insured that a) you have someone who fits the parameters you are looking for or b) you have found someone who doesn’t read your ads. It is simply amazing at how many people just don’t read the ads. I have probably had a dozen calls or emails in the last month for a property I was filling and my shared accommodations that have people asking questions I specifically answer in the ads.

After a while it gets frustrating, I mean really, if you cannot read my ad, can I really expect you to follow the lease? Anyway it doesn’t stop me, and it shouldn’t stop you, from making sure your rental ads are as descriptive as possible and that they also help you prescreen the individuals who contact you.

I’ve even put this little video together for you explaining my thoughts and as a bonus taking you on a quick tour of some of our shared accommodation properties. Would love to get your feedback, so please leave me some comments and let me know what you think. Would you like more videos like this?



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New Mortgage Rules Changes Introduced January 2011

Posted on January 17, 2011 by Bill Biko

OK, here comes the government with more changes to the 2011 mortgage regulations. Although government intervention in many things economic typically have negative results (go read my Rent Control article from a couple years ago), changes like the ones just introduced will likely be a positive intervention.

It was mostly due to our tighter mortgage regulations that we didn’t experience the same level of financial crisis that most of the other developed nations went through. Our stricter qualifying, our requirements for actually breathing to be able to sign documents (in the US there were several instances reported of people who were dead getting mortgages during their boom!) and our more conservative approach actually benefited us.

The latest changes are as follows;

  • Maximum amortization of 30 years for government insured mortgages (CMHC)
  • Reducing the amount homeowners can refinance their property to 85%
  • Home Equity Lines of Credit (HELOC’s) no longer qualify for government insurance

What is the intent of these changes? For the reduction in amortization lengths, it will accomplish a few different results. First, it will make it a bit more expensive for new homeowners to get a mortgage. Not a huge difference, but the reduced mortgage length will bump it up a bit. Second, it will reduce the amount of total interest being paid out over the duration of the amortization. The extra five years can add a significant amount of interest (the majority of it all on the front end) and this money will stay in the homeowner’s pockets rather than the banks.

By reducing the amounts homeowners can refinance their properties, it provides a bit more of a cushion if prices do decrease. It also creates a situation where the homeowners are forced to have some equity in their home rather than refinancing it and then converting it into toys and expenses like new vehicles, vacations and big screen TV’s.

Finally, by withdrawing insurance on lines of credit it will reduce the number of people who overextend and at the same time reduce the government’s exposure if prices again decrease. The intent behind all of these mortgage changes isn’t to necessarily make it harder for prospective homeowners to buy new properties or for current homeowners to access their equity, but rather to reduce the amount of household debt.

Canadians have been increasing the level of household debt on a very consistent basis for many years now and are currently at record levels. It will however push a few more people out of the race for homeownership, even with our current low interest rates. This can only be a good thing for anyone who currently has rental properties as it ensure our prospective base of clients (our tenants) won’t all jump ship and become owners themselves.

Harold Hagen Mortgage Associate


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Another Potential Dagger in the Real Estate Market Crash Theory

Posted on January 13, 2011 by Bill Biko

I was just reviewing some past news articles this morning and stumbled across a story for October last year I thought needed some reflection. The story was about a recent report from TD Canada Trust called the Boomer Buyer’s Report.

They completed an online survey and found that almost 60% of baby boomers (baby boomers were classified as people born between 1946 and 1964) are mortgage free. The national average is only 44%. On the other side of the coin, one in ten Albertan baby boomers had paid less than 25% of their mortgage!

Now baby boomers do not make up the entire population and the report also doesn’t include what percentage of total home ownership this makes up in the province, but it does indicate that there is a considerable amount of equity in property. This equity is far less volatile than the equity found in many of the foreclosure properties which may actually have negative equity.

You can think of this as a stabilizing agent for the market which counterbalances the foreclosure situations. Couple this with the increase in spending currently going on in the energy industries this year, the increase in oil prices and the overall stability of the province and it is all pointing to a banner year for our economy.


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Sales Are Down, But Values Are Up?

Posted on January 7, 2011 by Bill Biko

First off, 2010 wasn’t just a bad dream, instead 2010 really was just an extension of the last few years which have really been a nightmare for Alberta Real Estate values. The official 2010 CREB statistics are out now and total sales for single family homes in Calgary and area were the lowest in ten years. What a difference from only five years ago when we were setting sales records.

For a slightly more positive view, condominiums were not affected quite as bad; they were only the lowest in nine years. See, much better. To really let both of those sink in, you also have to understand that the Calgary population has increased by over 100,000 people in the area since then.

In a normal market, the increase in the population would help offset the slowdown in sales, but as many of you are aware, we definitely do not have a normal Real Estate market in Alberta! Our economy is so tightly woven into the oil and gas industries that we are well known as a boom or bust economy and no matter how many times we say, “This times different”, it really isn’t.

We still get caught, we still buy in, and we continue to buy our homes and our properties and our toys, no matter how often we see the down side of the cycle.  Now part of it may just be ingrained optimism, after all when an area has this much sunshine, how couldn’t you be just a little more upbeat? Or perhaps deep down we understand that in the big picture, as long as we can look down the road, owning your own property is a good thing.

How else can we explain the other interesting statistics that have also come out regarding prices? Both the average selling price in Calgary for 2010 and the median selling price of both single family homes and of condominiums has risen from the 2009 Real Estate statistics. Let me just repeat that as it’s so unique, prices are continuing to go up, while the number of actual sales continues to decrease.

That’s not normal folks. When sales decrease, there is less competition for a product or service and the prices are supposed to decrease to keep pace with lessened demand. Yet our market doesn’t seem to work that way.

So back to my optimism theory then. Could it be true that many of us still believe that a home is a good investment and that it’s still a good time to buy? We’ve gone through a few years of the bust part of our cycle, so shouldn’t we start to be a bit more optimistic about the possibilities?

Could it be there is a possibility that we may have another shot at the boom side of the cycle and the possibility that perhaps there is still some upside to Real Estate? Time will only tell and I was hoping it would have been a couple years earlier, but I think we may get to see things really turn around in 2011, but then perhaps I am just being optimistic!


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